China is moving to rectify the situation by reducing the number
of allowed iron ore importers by 80 per cent, from 500 to 100.

However, analysts said the lack of organisation within the
Chinese steel industry combined with tight supply should keep
Japan's price-setting position safe for another few years.

The Japanese steel mills have traditionally operated as a cartel
and were tough bargainers with Australian producers for decades
when demand was lower, Shaw Stockbroking analyst John Colnan
said.

"Now that there is a new player on the block with China, things
are slightly different," he said, pointing to BHP Billiton's recent
negotiations with some Chinese producers outside the Japanese
benchmark price deal.

But the degree of bargaining strategy consolidation still lags
behind Japan, where steel makers are represented by one player in
contract negotiations: Nippon Steel.

Chinese steel companies have said they planned to challenge the
Japanese in the future by uniting behind China's biggest steel
company, Baosteel, as its sole contract negotiator, but no
agreement is yet in place.

This year, the benchmark prices were set in February when Nippon
Steel agreed to pay the world's two largest iron ore producers, Rio
Tinto and CVRD, a 71.5 per cent increase in price. Baosteel soon
settled for the same rate.

BHP spokeswoman Tania Price said the company was "still in
negotiations" with Chinese steel makers, having declined to settle
for Rio's and CVRD's price.

BHP has argued it deserves higher prices because Chinese steel
mills save as much as $US20 a tonne ($25.80) shipping ore from the
company's mines in Western Australia, compared with shipments from
Brazil.

"It's not just a price dispute," Mr Colnan said. "It's a change
in the methodology on pricing."

BHP has demanded an extra $US7.50 to $US10 a tonne, which added
to the price set by Rio and CVRD would be up 115 per cent on the
previous year. Each $US1 a tonne increase the company receives will
add $US60 million to BHP's earnings.

Chinese companies have threatened to take their business to
India or North America if BHP refuses to lower its expectations but
ANZ commodities analyst Daniel Hynes said he did not think the
recent tense negotiations had burned bridges permanently. "BHP and
Australia will always be key suppliers of iron ore to that market,"
he said.

Mr Hynes predicted BHP would only receive a 5 per cent premium
over the Japanese benchmark price.